Current spot rate curve is given by
1 year 2 years 3 years 4 years
0.5% 1% 1.4% 2.1%
Provide a forecast of expected spot rates one year from today.
To provide a forecast of expected spot rates one year from today, we can observe the current spot rate curve and make some assumptions.
To forecast the spot rate for the 1-year maturity, we can assume that the trend in spot rates continues. In other words, we can assume that the increase in spot rates from 0.5% to 1% over the 1-year maturity will continue, with a similar magnitude of increase.
Based on this assumption, we can estimate the 1-year spot rate for one year from today by adding a similar increase to the current 1-year spot rate.
Let's calculate:
Current 1-year spot rate = 0.5%
Assumed increase in spot rates = 1% - 0.5% = 0.5%
Forecasted 1-year spot rate one year from today = Current 1-year spot rate + Assumed increase in spot rates
Forecasted 1-year spot rate = 0.5% + 0.5%
Therefore, the forecasted 1-year spot rate one year from today is 1%.
Please note that this forecast is based on the assumption that the trend in spot rates will continue, and it may not necessarily be accurate as spot rates are influenced by various factors and can be subject to changes.